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UBS reports a second quarter loss of CHF 1.4 billion; quarter-end BIS tier 1 ratio of 13.2%

Zürich / Basel Quarterly Results

Second quarter 2009 results

  • Second quarter net loss attributable to UBS shareholders of CHF 1,402 million

  • Results include an own credit charge of CHF 1,213 million, restructuring charges of CHF 582 million and a goodwill impairment charge of CHF 492 million related to the announced sale of UBS Pactual

  • Excluding the own credit, goodwill impairment and restructuring charges, operational profit before tax would have been CHF 971 million

Greater financial stability

  • Significant reduction in legacy risk positions and associated losses, including lower credit loss expenses

  • The improved perception of UBS's creditworthiness during second quarter 2009 was a positive development, but the own credit charge associated with this improvement was a major factor in the results

Net new money and invested assets

  • Net new money outflows were CHF 16.5 billion for Wealth Management & Swiss Bank; Wealth Management Americas reported net new money outflows of CHF 5.8 billion; net new money outflows totaled CHF 17.1 billion for Global Asset Management

  • Invested assets were CHF 2,250 billion at quarter-end, up from CHF 2,182 billion on 31 March 2009

Capital and balance sheet

  • Strong capital position: BIS tier 1 ratio of 13.2% and BIS total capital ratio of 17.7% at quarter-end, including the effect of the capital increase completed on 30 June 2009

  • The announced sale of UBS Pactual is expected to close in third quarter 2009 and increase UBS's BIS tier 1 ratio by approximately 50 basis points to a 30 June 2009 pro forma ratio of 13.7%

  • Further reductions of risk exposures and balance sheet: total assets down CHF 261 billion to CHF 1,600 billion and total risk-weighted assets under Basel II down 11% to CHF 248 billion at quarter-end

  • FINMA leverage ratio of 3.5% at 30 June 2009

Cost reduction

  • On track to achieve the targeted fixed cost base reduction of CHF 3.5 - 4.0 billion by 2010; cost savings starting to flow through with full effect expected towards the end of the year

  • Personnel down by 4,400 to 71,806 at 30 June 2009. As announced on 15 April 2009, staff will be reduced to approximately 67,500 by 2010

Outlook

  • Market conditions improved steadily during the second quarter, with asset prices rising as investor confidence began to return in many credit and equity markets. In spite of these positive economic signs, the overall economic environment in most of the regions in which we operate remains recessionary. Sustainable recovery is not yet visible.

  • We have seen increased activity levels among our wealth management clients, whose investment behavior appears progressively less risk averse. This should improve the fee earning potential of our wealth and asset management businesses. For our investment banking businesses, the current positive momentum in the equity markets provides a good backdrop for improvement in our equities and investment banking franchises. Credit markets are also buoyant, but our restrictive allocation of balance sheet and other resources to many of our fixed income businesses reflects our conservative view on risk taking as those businesses rebuild. Overall, our outlook remains cautious, consistent with our view that economic recovery will be constrained by low credit creation and the structural weaknesses in consumers' and governments' balance sheets.

UBS reports a second quarter loss of CHF 1,402 million.

Second quarter 2009 results

Net loss attributable to UBS shareholders was CHF 1,402 million in second quarter 2009 compared with CHF 1,975 million in first quarter 2009. This was driven by lower losses on risk positions from businesses now exited or in the process of being exited by the Investment Bank. Second quarter results were significantly affected by a charge of CHF 1,213 million for own credit on financial liabilities designated at fair value, restructuring charges of CHF 582 million and goodwill impairment charges of CHF 492 million in relation to the announced sale of UBS Pactual. Net loss from continuing operations was CHF 1,115 million compared with a net loss of CHF 1,852 million.

Total operating income increased to CHF 5,770 million from CHF 4,970 million. This was driven by lower trading losses with a net trading income of positive CHF 220 million compared with negative CHF 630 million. Net interest income decreased to CHF 1,143 million from CHF 1,899 million. UBS recorded a credit loss expense of CHF 388 million in second quarter 2009, compared with 1,135 million in first quarter 2009. Net fee and commission income was CHF 4,502 million, up 6% from CHF 4,241 million. Second quarter 2009 saw an increase in underwriting and net brokerage fees partly offset by decreases in the other fee categories. Other income decreased to CHF 292 million from CHF 595 million.

Total operating expenses increased 9% to CHF 7,093 million from CHF 6,528 million. Second quarter 2009 included restructuring charges of CHF 582 million and an additional goodwill impairment charge of CHF 492 million related to the announced sale of UBS Pactual, while first quarter 2009 included a goodwill impairment charge of CHF 631 million related to this transaction.

Business division performance: 2Q09 vs 1Q09

Wealth Management & Swiss Bank recorded a pre-tax profit of CHF 932 million, compared with CHF 1,077 million. Operating income was virtually flat, while second quarter restructuring charges of CHF 321 million resulted in an increase in operating expenses. Excluding restructuring charges, pre-tax profit for the second quarter would have increased 16% from the prior quarter.

Wealth Management Americas recorded a pre-tax loss of CHF 221 million compared with a pre-tax loss of CHF 35 million. The second quarter included restructuring charges of CHF 152 million, whereas the first quarter included a goodwill impairment charge of CHF 19 million related to the announced sale of UBS Pactual. Excluding these charges, the pre-tax loss for second quarter 2009 would have been CHF 69 million compared with a first quarter pre-tax loss of CHF 16 million.

Global Asset Management recorded a pre-tax profit of CHF 82 million compared with a pre-tax loss of CHF 59 million. Excluding a goodwill impairment charge in the first quarter of CHF 191 million in relation to the announced sale of UBS Pactual and restructuring charges in both quarters, pre-tax profit in the second quarter would have decreased by CHF 30 million, or 22%. Increased performance fees were more than offset by higher personnel expenses.

The Investment Bank recorded a pre-tax loss of CHF 1,846 million compared with a pre-tax loss of CHF 3,162 million. This change was driven by lower losses on risk positions from businesses now exited or in the process of being exited. An own credit charge of CHF 1,213 million on financial liabilities designated at fair value was included in the second quarter result, compared with an own credit gain of CHF 651 million in first quarter 2009. Operating expenses were down from the prior quarter, despite higher personnel expenses, as first quarter expenses included a goodwill impairment charge of CHF 421 million related to the announced sale of UBS Pactual. The equities and investment banking businesses saw increased revenues as they capitalized on improved market sentiment with increased activity in equity markets. However, underlying sales and trading revenues in the fixed income, currencies and commodities (FICC) area were weak as the business was being rebuilt. Additionally, the deployment of resources to FICC reflected a conservative view on risk taking.

The Corporate Center recorded a pre-tax loss from continuing operations of CHF 270 million in second quarter 2009. This was mainly due to a goodwill impairment charge of CHF 492 million related to the announced sale of UBS Pactual, primarily relating to foreign exchange losses. The Corporate Center recorded a pre-tax profit from continuing operations of CHF 621 million in first quarter 2009.

Net new money

Wealth Management & Swiss Bank - Outflows of net new money slowed to CHF 16.5 billion from CHF 23.4 billion. Total net new money outflows comprised CHF 0.2 billion from Swiss clients and CHF 16.3 billion from international clients, compared with net outflows of CHF 10.2 billion and CHF 13.2 billion respectively for first quarter 2009. Higher net outflows, particularly in European locations, were only partly offset by net inflows in the Asia Pacific region.

Wealth Management Americas - Second quarter 2009 saw net new money outflows of CHF 5.8 billion, compared with net new money inflows of CHF 16.2 billion in the first quarter.

Global Asset Management - Net new money outflows were CHF 17.1 billion compared with CHF 7.7 billion. Institutional net new money outflows were CHF 6.6 billion compared with CHF 1.1 billion. Excluding money market flows, net outflows were CHF 3.4 billion compared with CHF 9.2 billion. Equities saw the first quarterly net inflow since fourth quarter 2005 but net outflows were reported in multi-asset, alternative and quantitative investments, fixed income and real estate funds. Outflows of wholesale intermediary net new money were CHF 10.6 billion compared with CHF 6.6 billion. Excluding money market flows, wholesale intermediary net outflows were CHF 4.5 billion compared with CHF 8.7 billion. Outflows were reported mainly in multi-asset, equities and fixed income.

Capital base and balance sheet

On 30 June 2009, UBS's BIS tier 1 ratio stood at 13.2% and its BIS total capital ratio was 17.7%, up from 10.5% and 14.7% respectively on 31 March 2009. During the second quarter, risk-weighted assets (RWA) decreased 11%, to CHF 248.0 billion, BIS tier 1 capital increased by CHF 3.4 billion to CHF 32.6 billion, and BIS total capital increased by CHF 3.0 billion to CHF 43.9 billion. These numbers include the effect of the capital increase completed on 30 June 2009, through which UBS raised approximately CHF 3.8 billion net of fees through the placement of 293,258,050 new shares.

Taking into account the effects from the announced sale of UBS Pactual, which is expected to close in third quarter 2009, BIS tier 1 capital would increase by approximately CHF 1 billion and RWA would be CHF 3 billion lower. Upon closing of the transaction, UBS's BIS tier 1 ratio is expected to increase by approximately 50 basis points to a 30 June 2009 pro forma ratio of 13.7%.

UBS reduced its balance sheet by a further CHF 261 billion during the second quarter and held total assets of CHF 1,600 billion on 30 June 2009. Replacement values (RVs) decreased by a similar extent on both sides of the balance sheet, as market movements drove down positive replacement values by 28%, or CHF 211 billion, to CHF 543 billion and negative replacement values by 29%, or CHF 211 billion, to CHF 524 billion. In addition, lending assets fell by CHF 37 billion, collateral trading assets by CHF 12 billion and trading assets by CHF 4 billion.

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Cautionary Statement Regarding Forward-Looking Statements
Cautionary Statement Regarding Forward-Looking Statements | This release contains statements that constitute “forward-looking statements”, including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (1) future developments in the markets in which UBS operates or to which it is exposed, including movements in securities markets, credit spreads, currency exchange rates and interest rates; (2) the effect of the current economic environment or other developments on the financial position or creditworthiness of UBS’s customers and counterparties; (3) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings; (4) the outcome and possible consequences of pending or future actions or inquiries concerning UBS’s cross-border banking business by tax or regulatory authorities in the United States and other jurisdictions; (5) the degree to which UBS is successful in effecting organizational changes and implementing strategic plans, including the recently announced cost reductions, and whether those changes and plans will have the effects intended; (6) UBS’s ability to retain and attract the employees that are necessary to generate revenues and to manage, support and control its businesses; (7) political, governmental and regulatory developments, including the effect of more stringent capital requirements and the possible imposition of additional legal or regulatory constraints on UBS’s activities; (8) changes in accounting standards or policies, and accounting determinations affecting the recognition of gain or loss, the valuation of goodwill and other matters; (9) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (10) changes in the size, capabilities and effectiveness of UBS’s competitors; (11) the occurrence of operational failures, such as fraud, unauthorized trading and systems failures; and (12) technological developments. In addition, actual results could depend on other factors that we have previously indicated could adversely affect our business and financial performance which are contained in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s restated Annual Report on Form 20-F/A for the year ended 31 December 2008. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

Rounding
Numbers presented throughout this release may not add up precisely to the totals provided in the tables. Percentages and percent changes are calculated based on rounded figures displayed in the tables and text and may not